Retirement Planning Guide For Salaried Individuals
Retirement planning is essential for everyone, especially salaried individuals. So, if you are one, here are a few steps you can follow:
1. Assess your future financial goals, including all short-term, medium-term, and long-term plans that you want to achieve in the next 5 to 20 years.
2. Calculate your current income, loans, EMIs, and other expenses. Next, subtract these liabilities from your total assets/investments, which will give you your net worth.
3. Plan a budget by following the general thumb rule allocate 50% of your income for needs, 30% for wants, and 20% for savings.
Lastly, evaluate how much savings you will require to get by during your retirement years, based on which you can invest in pension plans in India or retirement plans in India.
How Much Do I Need To Retire In Canada
How much you need for retirement depends on a variety of questions. Namely, how you live now, how you intend to live until retirement, when you want to retire, and even where you want to retire. Heres a collection of calculators that can help put together some of these puzzle pieces:
S Corp Retirement Plan Options: Everything You Need To Know
S Corp retirement plan options are vast and there are several options that might be a better choice than others.3 min read
S Corp retirement plan options are vast. There are several options, some of which might be a better choice for you than others. If you operate as a very small S Corp, having a retirement plan for employees can cost you between $2,000 and $4,000 a year for administrative and insurance costs. Further, some plans require that the S Corp employer contribute to the employee accounts, at approximately 34 percent for each employee.
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What Are The Best Retirement Accounts
An increasing number of Americans use retirement accounts to fund their post-work years.
These accounts allow you to set aside money and invest it usually into stocks, bonds and mutual funds. The money grows throughout your working career.
Your employer may offer a retirement plan, or you can open your own at a financial institution such as a bank or brokerage firm.
There are several types of retirement accounts, and each offers favorable federal tax treatment to encourage people to save early and often.
Retirement accounts can either be tax-deferred or tax-exempt.
Traditional 401 plans and Individual Retirement Accounts, or IRAs, are tax-deferred. Tax savings are realized in the year you make contributions.
In contrast, Roth IRAs and Roth 401 plans are tax-exempt, which means withdrawals are tax-free in retirement.
For More Active/experienced Investors: Questrade*
Questrade boasts some of the lowest commission fees in the business. It costs nothing to buy ETFs, and buying or selling equities is only $0.01 per share . This is far more appealing than the high flat rates charged by the big banks, and there are no quarterly or monthly account fees or low activity fees. With a Questrade account , you arent limited to trading stocks and ETFs. You can trade on IPOs, precious metals and more, and with the ability to hold U.S. dollars, you can leverage Norberts Gambit to minimize the cost of currency conversions when buying and selling U.S. equities listed directly on the NYSE. A Questrade account gets you access to research tools like intraday Trader and Investment reports, and you can add tools from Questrade partners like Wealthica and VectorVest.
- Account, maintenance and low-activity fees: $0
- Commissions: $0 when buying ETFs, $0.01 per share on equities
- Portfolio: Ability to hold U.S. dollars and leverage the strategy known as Norberts Gambit Foreign to minimize foreign fees when trading equities listed on the NYSE
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Employer Matches And Contributions
If you have a retirement account through your employer and they match your contributions, that is free money you are earning and it speeds up your compound interest growth. Often, fresh out of school or when money is tight, you may elect to forgo maxing out your contributions, which also means losing out on the match from an employer. If your company provides this benefit, contribute as much as you can, and earn the extra money.
How Does Retirement Work In Canada
All employed Canadians pay into the Canada Pension Plan or Quebec Pension Plan . These plans are a key source of retirement income for many seniors. In January 2021, the average monthly CPP benefit was $619.75 per month. If youre a new beneficiary, the maximum you could receive is $1,203.75.
It doesnt take a financial wiz to know that this is hardly a liveable income even if youre able to access the maximum.
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Which Retirement Plan Is Best For You
In many cases you simply wont have a choice of retirement plans. Youll have to take what your employer offers, whether thats a 401, a 403, a defined-benefit plan or something else. But you can supplement that with an IRA, which is available to anyone regardless of their employer.
Heres a comparison of the pros and cons of a few retirement plans.
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Start Investing Small Amounts To Equity Funds
Start Investing Small Amounts to Equity Funds
If you have more than 10 years before you retire, start investing small additional amounts in equity funds. Best way to allocate your money to equity is through unit-linked plans, as you not only get the tax benefits, but you can also manage your portfolio risk automatically.
You should aim to increase this contribution to at least 5% of your annual take-home income.
How To Choose The Best Employee Retirement Plans For You
Most employers, and especially small business owners, dont have the internal resources to devote to managing employee retirement accounts. When youre running a business, you dont have time to take care of things like account onboarding, compliance, and administration.
When searching for an employee retirement plan, its important to focus on ease of administration and affordability. The plans listed above satisfy these criteria.
However, you should look for other things, too. Here are five factors to keep in mind when youre shopping around for an employee retirement plan.
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Types Of Retirement Accounts: Iras And 401s
We can help. By learning about your options, you can choose the type of savings account thats right for your life, now and in the future.
Lets start with the two most common ways to saveIndividual Retirement Accounts and 401 accounts. Well break down the similarities and differences between traditional 401s and traditional IRAs, then share details around Roth IRAs and Roth 401s, giving you a basic understanding of each.
What Type Of Assets Go Into A Trust
Many people assume that once they sign the trust documents at their attorneys office, they are ready to roll. Setting up a trust, however, is only half of the solution. For a revocable living trust to take effect, it should be funded by transferring certain assets into the trust. Often people fund a living trust with real estate, financial accounts, life insurance, annuity certificates, personal property, business interests and other assets. The most notable types are outlined below:
Real Estate: Many people wonder whether it is a good idea to place their house in a trust. Considering that your home is potentially one of your largest assets, living trusts can be especially beneficial as they can transfer real estate quickly. Additionally, they help avoid the hassle of separate probate proceedings for land, commercial properties and homes that are owned out of state or held in different counties. Any property with a mortgage, however, would require refinancing into the name of the trust, and some lenders may be reluctant to do this.
Financial Accounts: There are several types of financial assets that can be owned by a trust, including:
- Bonds and stock certificates
- Certificates of deposit
- Safe deposit boxes
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Why Put Your Money In Retirement Plans
When the time comes to retire, you might want to purchase an annuity. This is the product that is going to pay you a regular income when you’re done with the working world.
Retirement Plans
An added bonus of saving for your retirement is that you might get tax benefits. Take a look at some of the products on offer. And remember, help in the form of our financial advisers is a quick “call me back” away.
Benefits
Eq Bank Rsp Savings Account*
At 1.25%, EQ Bank is currently offering the highest interest rate available on a savings account in Canada. If youre looking for a no-risk and stable way to grow your RRSP funds, this account may be the right place to put your money. The EQ Bank RSP Savings Account could be ideal if youre nearing retirement and dont want to worry about investment fluctuations, or if youre an aspiring first-time home buyer planning on leveraging the Home Buyers Plan and want to safely invest your down payment.
Theres no minimum balance or monthly account fees. And EQ Bank, owned and operated by Canadas ninth-largest Schedule 1 bank Equitable Bank, is a member of the Canada Deposit Insurance Corporation, just like with the big banks.
- Interest rate: 1.25%
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What Kinds Of Investments Can I Hold Inside My Rrsp
Theres a wide variety of investments you can hold inside an RRSPand you dont have to stick to just one, or even two. Depending on your investment horizon , risk tolerance and other personal factors, using a mix of low-risk savings accounts and GICs for safety, along with perhaps some exchange-traded funds and even individual stocks for growth, can offer diversification.
Note that not every kind of investment can be held in an RRSP. Non-qualified investments include: Investing in businesses in which you hold an interest of 10% or higher, precious metals that are not gold or silver, commodity futures, private holding companies or private foreign corporations, your own debt, and personal property.
How Do Pension Plans Work
Investing in a pension plan requires you to contribute a certain sum to a fund over some time. This can be done either regularly or in a lump sum. These payments which you invest in your pension plan help build your corpus through the years. This corpus is used to provide you regular payments that you can use to meet your expenses once you retire. Thus, a pension scheme makes sure that your income flow does not stop even after retirement.
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Financial Planning With A Pension
Financial planning with a pension will depend on what type of pension you have. They all work a little differently so it will depend on what type of pension you have and the specifics of your pension.
A simple thing like inflation protection on a defined benefit pension can make an enormous difference over time. Or investment fees in a defined contribution pension or group RRSP can also create a significant drag on retirement savings.
Each type of pension has its individual pros and cons. How your pension integrates into your financial plan will depend on your individual goals.
Free Resources
Can You Put A Business In A Living Trust
There are a number of advantages of transferring your business interest into a revocable living trust. Benefits generally include providing relief to your family from carrying the burden of your business debts, as well as the potential to reduce the tax burden on your estate. Below are the effects of several types of business ownerships:
Sole Proprietorships: Transferring a small business during the probate process can present a challenge and may require your executor to keep the business running for months under court supervision. Often sole proprietors hold business assets in their own name, so transferring them to a trust would offer some protection for the family. For a sole proprietor, transfers to a trust behave generally the same as transferring any other type of personal assets you own, including your business name.
Partnerships:With partnerships, you may transfer your share in the partnership to a living trust. If you hold an ownership certificate, you will, however, need to have it modified to show the trust as the shareowner rather than yourself. It is important to note that some partnership agreements may prohibit transferring assets to living trusts, so you will want to consult a financial adviser or attorney.
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Best Retirement Plan Options
According to the Social Security Administration, 9 out of 10 people over age 65 receive Social Security. On average, Social Security counts for about 39% of total income during retirement. Social Security cant cover all your financial needs during your retirement years. Having a solid retirement plan that will give you a financially secure retirement is based on having a bundle of various income sources best suited to meet your goals. With so many options, how do you select the right types of retirement plans?
Having a solid retirement plan that will give you a financially secure retirement is based on having a bundle of various income sources best suited to meet your goals.
What Are The Best Retirement Plans In Canada
Putting together a retirement plan means youll likely draw from a variety of sources. The traditional Registered Retirement Savings Plan which we discuss further down is one of the most common ways of saving for retirement.
Lets look at some of the other sources of income for retirement available to Canadians.
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Traditional Ira Income Limits
With a traditional IRA, you get an upfront tax breakyou can deduct your contributionsbut you pay taxes on withdrawals in retirement. One caveat: You can always deduct your contributions in full only if you and your spouse don’t have a 401 or some other retirement plan at work. Otherwise, your deduction could be reduced or eliminated, depending on your income.
Here’s a rundown of the 2021 and 2022 contribution limits per the IRS:
| 2021 Traditional IRA Deduction Limits | ||
|---|---|---|
| If your filing status is | And your modified AGI is | Then you can take |
| Single, head of household, qualifying widow, married filing jointly or separately and neither spouse is covered by a plan at work | Any amount |
| No deduction |
Which Plan Is Best For You
If you’re not a small business owner or self-employed individual, the best retirement plan for you usually depends on your type of employer, marital status, and short- and long-term savings goals. If you’re employed, though, you’ll still only have so much control since your employer determines which types of plans you can open.
However, for most employer-sponsored retirement accounts, you can decide whether or not to make pre-tax or post-tax contributions to your account. Roth contributions are best for those who expect to pay more in taxes as they age, but you should consider pre-tax contributions if you don’t mind paying taxes when you withdraw money from your account in retirement.
And you can boost your retirement savings even more by opening a separate IRA in addition to your employer-sponsored plan .
Self-employed individuals and small business owners also have a range of options. Solo 401s and SEP IRAs are best for self-employed individuals and small businesses looking to maximize their annual retirement savings . SIMPLE IRAs and payroll deduction IRAs are better options for small businesses who don’t mind offering employees smaller annual contribution limits.
Rickie Houston is a wealth-building reporter at Personal Finance Insider who covers investing, brokerage, and wealth-building products.
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Key Plan Benefits To Consider
Virtually all retirement plans offer a tax advantage, whether its available upfront during the savings phase or when youre taking withdrawals. For example, traditional 401 contributions are made with pre-tax dollars, reducing your taxable income. Roth 401 plans, in contrast, are funded with after-tax dollars but withdrawals are tax-free.
Some retirement savings plans also include matching contributions from your employer, such as 401 or 403 plans, while others dont. When trying to decide whether to invest in a 401 at work or an individual retirement account , go with the 401 if you get a company match or do both if you can afford it.
If you were automatically enrolled in your companys 401 plan, check to make sure youre taking full advantage of the company match if one is available.
And consider increasing your annual contribution, since many plans start you off at a paltry deferral level that is not enough to ensure retirement security. Roughly half of 401 plans that offer automatic enrollment, according to Vanguard, use a default savings deferral rate of just 3 percent. Yet T. Rowe Price says you should aim to save at least 15 percent of your income each year.
Getting The Maximum Match
If a matching contribution is being made to the 401 plan, consider the maximum amount that needs to be contributed to the plan in order to receive the maximum available matching contribution.
For example, assume TJ’s compensation is $80,000 per year, and the match is $1 for $1 up to 3% of compensation. She will need to contribute at least $2,400 to her 401 plan in order to receive the maximum available matching contribution of $2,400.
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